Regulatory&LitigationDevelopmentsforAdvertisersandMarketers

Ouch, Treble Damages in False Advertising Cases?

This blog reports frequently on the troubles marketers get into with the FTC, State AGs, the NAD, under the Lanham Act, or from class actions based on making allegedly false statements about their products or their competitors’ products. A recent $113 million jury verdict in Texas reminds us that the antitrust laws can come into play as well for such conduct, if an actor with monopoly or market power can be said to be unlawfully excluding its rivals by its advertising or marketing techniques.

Retractable Technologies (“Retractable”) developed a disposable retractable point or “safety” syringe designed to reduce the risk of accidental needle sticks for health care workers and to eliminate the possibility that syringes would be reused. Among other things, these features would help reduce the risk that health care workers would be exposed to the HIV virus and that used syringes would be re-used for illegal drug use. Becton Dickinson (“BD”) possessed a dominant share of the existing conventional disposable syringe market. In response to Retractable’s introduction of the safety syringe, BD introduced its own safety syringe. Litigation involving claims of patent infringement, monopolization, restraint of trade, and false advertising ensued.

Retractable’s claims that BD violated the antitrust laws and the Lanham Act by taking a variety of steps to try and disadvantage Retractable in the safety syringe market recently were tried before a jury in the Eastern District of Texas. The jury rejected Retractable’s claims that BD violated the antitrust laws through improper exclusive dealing or bundled discounts that made it difficult or impossible for Retractable to sell its syringes.

The jury, however, found for Retractable on its claims that BD attempted to monopolize the safety syringe market by making deceptive claims regarding the two parties’ products. Among the alleged false claims were: BD’s marketing that Retractable’s safety syringes had more “waste space” increasing the cost of use of Retractable’s syringes; BD’s marketing that the needles in its syringes were the world’s sharpest, which resulted in increased safety and comfort for patients; and BD’s marketing that it possessed “data on file” to support both the waste space and sharpness claims. The jury then awarded Retractable $113 million in damages from the deceptive statements, which are automatically trebled under the antitrust laws. The jury also found those statements violated the Lanham Act, but did not award any additional damages under the Lanham Act. (Under the Lanham Act, a monetary award can be enhanced up to treble damages but only as just compensation and not as a penalty – unlike the Clayton Act where private treble damages are an incentive for private actions and a deterrent to anticompetitive comduct. And in an antitrust action attorneys’ fees are a given where in a Lanham Act case are only awarded in exception circumstances involving fraud or bad faith.) BD has announced its intent to appeal the verdict.

So if you have a large market share, you need to be extra careful regarding the claims you make concerning both your and your competitors’ products. Successful antitrust cases predicated on false advertising allegations are rare, but they do happen with successful forum shopping. The 7th Circuit has suggested that antitrust cases predicated on false advertising are not appropriate because false advertising does not drive up prices or limit output. Other courts, including in the 9th Circuit, have found that false advertising by a monopolist can be a violation of Section 2 of the Sherman Act with a showing by the smaller plaintiff rival that such statements had a clear effect – for example showing that the statements were not only false and material but likely to induce reasonable reliance, continued for a significant length of time and that rivals are unable to offset the false impression with their own advertising. So while this burden is high, the potential payoff of treble damages can be particularly painful.

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